Rajan ready to shore up

RBI guv open to deploying foreign exchange reserves, but says no rate cut on public pleading

MUMBAI: Reserve Bank of India (RBI) governor Raghuram Rajan on Monday said he was ready to deploy India’s foreign exchange reserves to curb volatility, as stock and currency markets went into a tailspin following a global sell-off.

“We have about $355 billion in reserves plus another $25 billion as forward contracts, so in sum we have $380 billion. We will have no hesitation in using reserves to reduce volatility,” he said at a banking conclave organised by industry chamber FICCI and the Indian Banks’ Association.

The comments came on a day the Sensex crashed 1,625 points, while the rupee, which has outperformed many other emerging market currencies so far, tumbled by 82 paise to 66.56, its biggest single-day fall this year.

Stating that India’s macroeconomic problems were under control, Rajan expressed hope that the country will reemerge as the preferred investment destination for global investors once the current volatility subsides.

The RBI would continue to help growth by bringing down inflation, Rajan said, reiterating that the central bank continues to await greater transmission of past interest rate cuts and other data parameters to decide on the future course of action.

“Rate cuts should not be seen as goodies that the RBI gives out stingily after much public pleading. Instead, what is important is sustained low inflation, something the Prime Minister emphasised in his Independence Day speech, and rate cuts are a natural consequence that the RBI has no hesitancy in delivering,” he said.

Rajan’s comments come amid growing clamor for an interest rate cut to fuel growth from various sections, including finance minister Arun Jaitley, particularly, since consumer price inflation slipped to a record 3.78% in July.

“Hopefully, the impact of inflation being under control is a factor, which the central bank, with all its wisdom, will take note of,” Jaitley had told a gathering of bankers last week.

Rajan said there is no long run trade-off between growth and inflation, and the best way for a central bank to ensure sustainable growth is to keep demand close to supply so that inflation is moderate.